AT&T Inc. (T:US), the largest U.S. phone company, posted a narrower fourth-quarter loss after customers bought a record number of discounted smartphones, including 8.6 million of Apple Inc. (AAPL:US)’s iPhones.
The loss shrank to $3.86 billion, or 68 cents a share, from $6.68 billion, or $1.12, a year earlier, Dallas-based AT&T said yesterday. Leaving out charges such as pension costs, profit was 44 cents a share, missing the 45-cent average of analysts, according to data compiled by Bloomberg. Sales were little changed at $32.6 billion, topping the estimate of $32.2 billion.
AT&T recruited 780,000 contract customers (T:US), surpassing the 683,000 average of nine estimates compiled by Bloomberg, by offering smartphone prices that squeezed profits. Chief Executive Officer Randall Stephenson is working to catch up to the subscriber growth of Verizon Wireless, which added 2.1 million contract customers last quarter.
“The fourth quarter is always a tough one,” Todd Rethemeier, an analyst with Hudson Square Research in New York, said in an interview. “The new iPhone puts margins at a low point for the year.”
AT&T forecast sales this year of at least $130 billion, compared with the $128 billion estimate of analysts. Earnings per share will expand by a percentage in the “upper single digits or higher,” the company said. Analysts estimate a 9 percent increase.
AT&T rose 0.8 percent to $34.02 at the close in New York. The stock climbed 11 percent last year, behind the 13 percent gain of the Standard & Poor’s 500 Index.
Like Verizon, AT&T sells smartphones such as Apple’s iPhone 5, which was introduced in September, at a loss to persuade customers to sign two-year subscriptions. A new AT&T user can buy the iPhone 5 for $649 with no contract or for $199 by committing to a long-term deal, for example. While those discounts hurt profit margins initially, they produce a steady stream of revenue over the life of the agreement.
AT&T had already announced last week in a filing that smartphone sales hit 10.2 million in the quarter, warning that hitting that record would hurt profits.
The carrier also said then that it had lowered its expected long-term rate of return for its pension plan, leading to a $10 billion charge, and that repairs following superstorm Sandy would cut $175 million from operating income. Last year’s fourth-quarter results were hurt by a $4 billion pretax charge for the failed acquisition (T:US) of T-Mobile USA.
The average monthly mobile-phone bill for users on contracts increased 1.9 percent to $64.98 as smartphone owners spent more to watch videos and listen to music. Leaving out the effect of the Sandy storm, the bill increase would have been 2.1 percent, AT&T said. Analysts had estimated $65.32, according to an average of nine estimates.
The profit margin for wireless service, leaving out items such as interest and taxes, was 29.1 percent, little changed from a year earlier. Without the effects of Sandy, it would have been almost 30 percent, AT&T said. That compares with the 31.1 percent average estimate in a Bloomberg survey of nine analysts.
Stephenson may look beyond U.S. borders to reignite growth. Calling international consolidation “inevitable,” he said on a conference call yesterday that AT&T is considering partnerships with foreign phone carriers. The Wall Street Journal reported last week, citing unidentified people, that AT&T is looking at takeover targets in Europe.
Sales from AT&T’s landline business slid 0.5 percent to $14.9 billion. AT&T added 192,000 U-verse television subscribers to reach 4.5 million.
AT&T’s fourth-quarter capital spending was $5.9 billion, up from $5.5 billion a year earlier. For the full year, the company spent $19.7 billion, within the range of its original forecast of $19 billion to $20 billion, and below the $20.3 billion spent in 2011, including interest.
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